Managing the Uncertainty

All businesses involve risks, some big and some small. People do not like risks, as a single risk can devastate the business entirely. However, businesses with big risks, like start-up ventures, tend to bring higher financial outcome, if risks are well managed. As the article Disciplined Entrepreneurship suggests, “The critical task of entrepreneurship lies in effectively managing the uncertainty inherent in trying something new.” For social ventures, it is even truer. I believe that social entrepreneurs bear more responsibility in managing the uncertainty of his or her venture well, as the opportunity cost of failure is too much, both financially and socially. We cannot bear the loss that could have been a benefit for some people.

This article maps out a disciplined approach for entrepreneurs to manage the uncertainty. There are a few steps that are helpful for me to test the uncertainty of my venture.

Formulate a Working Hypothesis
Identify deal killers and big bets

Deal killers: responses from competitors, lack of donations coming through
Big bets: alliance with doctors, partnerships with local health organizations and agencies

I need to watch out reactions from competitors. It could mean a lucrative business for insurance companies, deprivation of donations from other not-for-profit organizations, over-occupation of resources from hospitals or government agencies, or others. Anything that does not work out well with supposed “partners” of the venture may turn to be agony that they hold against the venture. To tackle this, I need to rely on my big bets, which are doctors that serve as glue that connects the venture with other organizations. Also, good nurture of partnerships is also important, which can be attained through arrangement of “win-win” situation.

Assemble Resources
Raise enough money to fund the next round of experiments-The venture relies on donations from the public, so it can only begin its mission when donations are coming in. In my case and in many other social enterprises’ examples that depend on contributions, it is more challenging to draw VC’s investments, and thus harder to raise “enough” money to fund the experiment. Instead of waiting endlessly for “enough” money to come in, why not start when a certain level of capital is raised, so that the influence of venture can be illustrated to the public and more people would know about it? In return, more funds will come in and bigger influence will be exerted to the needed.

Design and Run Experiments
Thanks to so many previous articles that stress the importance of starting small, I would not find this point surprising. And thanks to Professor Zak for pointing out the importance of concentration and focus for social enterprise.

I will start my venture in Pittsburgh, testing all the uncertainty including known unknown uncertainties, e.g. reactions from competitors, sustainability of funds, customer attraction and retention, feasibility of partnerships, and viability of business model. Also more uncertainties that I do not know that are unknown.

Back to question on resources. For for-profit ventures which have VC, it is a relatively direct fact that how much money has been raised and how much is needed to keep the experiment running for a year. However, for social ventures that bear many characteristics of not-for-profit, i.e. donation supported, how much is “enough”? How long should entrepreneur should wait till it is relatively “enough” for the experiment?